It’s ALL Rigged… Crash.

everybody's heard it before but the

revisions are absolutely nuts for the

data that we're getting including jobs

data every single time we get jobs data

it gets revised down this is common of a

declining market and sort of economy

rather but what is now the problem that

the Wall Street Journal is suggesting

with economic data and apparently that

data is getting even worse and what

could that mean

for us as investors let's find out

investors are often wildly overconfident

about what's going to happen they hope

for new technologies that push stock

prices to extreme highs or for stories

of impending doom that drive them to

extreme lows but even wise investors are

prone to buying into narratives about

the current state of the economy that

turn out to be deeply flawed revisions

to economic data are widespread and

normal but occasionally the revisions

are so big that they upend our shared

understanding of what's actually going

on in the economy in the latest example

from the United Kingdom where it turns

out the economy grew much more than

previously estimated rather than being

the stickman of Europe with GDP still

smaller than before the pandemic and the

weakest recovery in the group of seven

it has now beaten Germany and grown in

line with France

the problem isn't new but it's getting

worse

timely data is typically based on

surveys and even companies can't be

bothered to fill in surveys anymore this

is true one of the things that you

really realize with surveys is that

usually in a rougher economy

businesses feel almost embarrassed to

submit surveys not because they really

are embarrassed to fill out this

Anonymous survey but because filling out

the survey acknowledges the pain

acknowledging the pain is actually very

psychologically difficult and it's

actually sometimes one of the best

things that we can do and I'm not trying

to go down the tangent of psychology but

sometimes if we feel depressed or sad

about something one of the best things

to do is lean into it and think about

all possible scenarios about how bad

something could be to find out wait a

minute those things that I thought were

really bad maybe actually aren't that

bad or maybe they're actually hidden

opportunities in that maybe there's a

reason this is happening right uh but

but generally that's not how we as

humans think we try to recoil from bad

news so survey results uh actually

disappear like become less functional

because less people are responding to

surveys early reporting figures that are

later revised away can send investors in

entirely the wrong direction

it can bet an understanding of the

economy that takes a long time to be

corrected at worst it can lead to a

misallocation of capital and influence

government policy or interest rates I

personally believe that's exactly what's

happening with the bearer narrative that

there's this belief that oh my gosh

inflation's going to stay high forever

and that earnings are going to crash and

then we're going to go into a deep dark

recession and the Black Swan is going to

kill everyone

well the reality is you should probably

be considering that we're in a volatile

Nike Swoosh recovery I've been calling

this for about 12 months it's been

correct I expect it to continue to be

correct that doesn't mean I'm always

right I definitely make mistakes but I

think this perspective is accurate and

and so far everything continues to

reiterate that and we'll see it when

things change uh obviously we'll Wars

but so far this is what's been happening

but this is right I mean the Wall Street

Journal here is arguing that you have to

be careful about misallocating Capital

uh based on potential

wrong information

markets don't tend to react to revisions

and especially to revisions like we've

just had to GDP because your average

Trader or investor is interested in

what's the latest data not what happened

previously or still people cling to the

idea that numbers are accurate no

they're not uh this isn't only a problem

for investors in the UK where the three

trillion dollar economy is almost two

percent bigger than previously thought

investors in the US have been wrong

footed about the jobs Market this year

which has turned out to be much cooler

than expected which is actually

to some extent somewhat bullish because

it means the FED can relax

some of the surprise was simply that

economists predicted more jobs would be

created than in fact were which is the

normal uncertainty about the future that

investing is all about but revisions

contributed as initially strong jobs

figures

uh were later revised down sharply with

a quarter of a million fewer jobs

created over the past six months than

previously thought I actually think that

was up to 300 000 fewer previously jobs

created it turned out to be good for

stocks reducing the pressure on

profit-sapping wage increases and easing

the need for higher rates exactly

three examples show how this can matter

a lot for policy as well the labor

market in the summer of 2011 appeared to

have stalled the Bureau of Labor

Statistics reported zero jobs growth in

August of 2011 which is really

interesting because the fall of 2011 was

often seen as the bottom of the market

the bottom of the real estate market

Wall Street Journal reported on the

figures was headlined job growth grinds

to a halt stocks fell more than two

percent that day the truth was actually

the opposite later revisions showed that

new jobs were being created at a healthy

clip of about 130 000 per month it's

crazy that like it's at the inflection

points that the data is most inaccurate

so it's probably weaker now than the

data is reporting but when it starts

inflecting up again that'll also occur

with a substantial lag

in Britain at about the same time fears

grew of a triple dip recession oh my

gosh in the end the third recession

never happened and the second recession

defined as two quarters of falling GDP

was revised away it turns out rather

than shrinking one percent over three

successive quarters there was only one

quarter of a downturn

see this by the way is is why it's hard

to be bearish for the long term because

usually economies just strengthen over

the long term then there was the first

quarter of 2015 when the U.S economy

according to the Wall Street Journal

slowed to a crawl with growth of just

0.2 percent this is by the way when we

were like lowering our inflation targets

that was later relied or a revised to a

fall of just 0.7 percent although the

FED blamed it on transitory factors oh

that's actually comedy which turned out

to be right though and growth

subsequently revised up to 3.3 percent

and what's actually comedy about this is

the transitory inflation narrative will

probably end up being correct in the

long term we'll look back and go of

course it was transport investors should

brace for more of this shifts such as

working from home and new job categories

like social media influencers oh I

wonder what that's like aren't captured

in much of the data

the timely data that drives markets on a

day-to-day basis has become less

reliable the response rate for surveys

has been behind uh at about just sixty

percent before the market or oh 60

before the pandemic now just 42 it's

even worse is the joltz data to find out

how many vacancies and uh how many

people are quitting in terms of these

surveys uh are also flawed because the

response rates are are super low look at

that just 32 percent investors should be

aware of this uncertainty and try to

back up any position based on economic

data by checking other data in surveys

right this is why you can't just look at

one piece of data and that's why you

know I'm I'm not here to try to say like

oh stocks can only go up you know it's

the bull narrative it's just when we

take everything as a holistic view which

we do every single day we're sitting

here every single day understanding

Market not just data wise or chart wise

or stock wise or earnings call wise but

earnings reports and talking to business

owners talking to Real Estate Investors

talking to landlords talking to Realtors

talking to you know Executives at

companies or companies uh investor

relations uh staff

all this together

it just indicates that companies aren't

actually planning for recession that's

like sort of the edge right now doesn't

mean we can't get Black Swan but yeah it

is true you know the data as it probably

more corrects is probably going to be

more towards indicating hey fad

you've done enough

don't over correct which is somewhat of

a bare case right this idea that the FED

could over over cracked let's take a

look at how we're doing on breakevens

five-year break even right now sits at a

5 or 2.29

somewhat stable since about middle of

July

and a little up recently but stable

since the middle of July five year

forward sitting at 2.33 and then we can

get to the fed's terminal fed funds Ray

now remember

5.37 implies no more rate hikes and any

little bit above 5.37 getting to about

5.625 gets us closer to fully pricing in

another rate hike

and that number currently is sitting at

drum roll waiting for the chart to load

it's still loading

still loading okay we're waiting for

each other last we checked it was

somewhere around five point

four two was roughly the the high level

I can't get this load right now it's

probably at a similar level uh oh here

it is it just came through

5.43 a similar area

so uh yeah anyway that uh that gives us

a little bit of a thought on some of

this economic data uh and uh really

suggest hey don't don't be too caught up

in just one piece

attack look at look at everything look

at everything that's going on